On March 5, the RBI barred JMFPL, a subsidiary of the company, from giving loans against shares and debentures, including sanction and disbursal of loans against Initial Public Offering (IPO) of shares, with immediate effect. The central bank ordered the mortgage lender JM Financial Products to “cease and desist” from doing any form of financing against shares and debentures, including sanction and disbursal of loans against IPO of shares as well as against subscription to debentures. JM Financial, however, has been allowed to continue to service its existing loan accounts through the usual collection and recovery process.

As per the RBI, the action was necessitated due to certain serious deficiencies observed in respect of loans sanctioned by the company for IPO financing as well as NCD (non-convertible debentures) subscriptions. The central bank carried out a limited review of the books of the company on the basis of the information shared by the Securities and Exchange Board of India (SEBI).

“During the limited review it was observed, inter alia, that the company repeatedly helped a group of its customers to bid for various IPO and NCD offerings by using loaned funds. The credit underwriting was found to be perfunctory, and financing was done against meagre margins,” the central bank says in its order.

“The application for subscription, the demat accounts and the bank accounts, all were operated by the company using a Power of Attorney (POA) and a Master Agreement obtained from these customers without their involvement, whatsoever, in the subsequent operations. Consequently, the company was able to effectively act as both lender as well as borrower,” the RBI order explains.

Following the RBI order, JM Financial in its clarification said, “After careful and detailed review of the order issued by the RBI on the action against JM Financial Products Ltd, we strongly believe that there have been no material deficiencies in our loan sanctioning process. Further, the Company has not violated applicable regulations.”

RBI action against JM Financial

After RBI action, SEBI bars JM Financial from acting as debt issue lead manager